Bernstein has maintained its ‘Outperform’ rating on Avenue Supermart (DMart) with a target price of ₹5800, indicating a potential upside of 27% from the current market price of ₹4570. This comes despite the company reporting its slowest revenue growth in four years during the second quarter of FY25, with a 14.4% year-on-year increase.
Avenue Supermart’s like-for-like (LFL) growth for Q2FY25 stood at 5.5%, down from 9.1% in the previous quarter, marking the slowest LFL growth in three years. The company’s standalone EBITDA margin for the quarter came in at 7.9%, and PAT margins were 5.0%, both slightly lower than the same period last year. Bernstein attributed the lower margins to weaker operating leverage.
In its report, Bernstein identified three broad strategies for DMart to return to 20%+ growth. These include faster store or retail area additions, increased focus on DMart Ready’s growth and profitability with faster delivery services and more competitive pricing on fruits and vegetables, and reduced competitive pressure from quick commerce players in metro areas. However, the impact of these measures is expected to be seen over the next 3-5 quarters.
As of October 13, 2024, Avenue Supermart’s stock is trading at ₹4570. Despite the slower growth, Bernstein remains confident in the company’s long-term potential and has retained its target price of ₹5800.
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